- Australian retail sales rose by 0.1% in January, a particularly weak result having fallen 0.4% in December.
- Spending in discretionary categories were flat after tanking 1.1% in December. Annual growth in these categories hit a multi-year low.
- From a longer-term perspective, evidence is mounting that falling home prices are impacting consumer behaviour.
- Economists believe today’s result increases the risk of a RBA rate cut.
Australian retail sales remained weak in January, adding to a lengthening list of concerning indicators on the strength of household spending.
According to the Australian Bureau of Statistics (ABS), sales grew by just 0.1% during the month in seasonally adjusted terms, coming in well under the modest 0.3% increase expected.
The modest increase followed a sharp decline of 0.4% in December that was unchanged from the initial estimate.
Adding to the downbeat tone of the report, non-food sales — regarded as a better gauge on discretionary spending patterns — were flat, failing to bounce following a large 1.1% decline in December.
That is a worry, suggesting that households are cutting back spending on the little luxuries in life.
From a year earlier, total sales increased by 2.6%, the weakest result since May last year. For non-food sales, growth was even worse over the same period, increasing by just 1.7%.
Not since October 2017 has annual non-food sales growth been this low.
Looking through the monthly data, the ABS said the performance across various categories was “mixed”.
Spending on food, at cafes, restaurant and takeaway outlets and “other” retailers grew by 0.3%, 0.3% and 0.7% respectively, offsetting falls of 2.1% and 0.3% respectively at department stores and at clothing, footwear and personal accessory retailers.
Sales of household goods were flat, likely reflecting the downturn in Australia’s housing market and multi-decade lows in housing turnover.
By state and territory, the performance was equally mixed, and provided few clues as to whether falling home prices is impacting consumer behavior, at least from a monthly perspective.
The ABS said sales rose by 0.7% in New South Wales but only 0.1% in Victoria, providing a mixed signal on a possible negative wealth effect from falling home prices in those states.
Elsewhere, sales rose by 0.4% in Tasmania and by 0.1% in South Australia, offsetting falls of 0.5%, 0.3%, 1.2% and 0.4% respectively in Queensland, Western Australia, the Northern Territory and ACT.
However, while the performance across the states and territories was mixed in January, Callam Pickering, APAC Economist at jobs specialists Indeed, said evidence is building to suggest falling home prices are having an impact on consumers.
“There has been much discussion recently about the ‘wealth effect’ derived from falling house prices. Two distinct trends have emerged: he said following the release of the retail report.
“First, retail growth has slowed noticeably in New South Wales and Victoria, despite a relatively strong labour market in both states. In fact, New South Wales is currently our slowest growing retail market.
“Second, growth has also eased among discretionary items such as household goods.
“Discretionary items tend to be particularly sensitive to changes in economic conditions. That households are delaying purchases on televisions and fridges, not to mention the large decline in motor vehicle purchases, speaks volumes about conditions across the household sector.”
Coupled with weak wage growth and declining levels of household savings, Pickering says it means the retail sector continues is “under intense pressure”.
It’s hard to disagree given how weak retail sales were in the second half of 2018.
“Almost no growth is a disappointing outcome, particularly following the 0.4% fall last month,” said Kristina Clifton, Senior Economist at the Commonwealth Bank.
“There are no signs in today’s data that the consumer is out of the woods yet.”
Kaixin Owyong, Economist at the National Australia Bank, said the details of the report, combined with the trends seen in the second half of last year, means the risk of rate cuts from the RBA is growing.
“For the RBA, today’s data add to an already weak picture for households, raising the risk the bank will have to act on rates to support consumers, Owyong said.
Pickering at Indeed agrees.
“The recently flow of economic data, retail and otherwise, does not paint a rosy picture for the Australian economy,” he said.
“Conditions have soured and the market now expects one rate cut this year.
“The Reserve Bank is keeping its cards close to its chest, but with each passing day the likelihood of a cut increases.
“May and August appear the most likely months based on past RBA decisions.”
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